Common Misconceptions about PACE Funding

apples and orangesBy Steven Turner MD, MBA, Financial Analyst

Recently, a real estate agent compared a Property Assessed Clean Energy (PACE) financing to a traditional construction loan or mortgage and noted that the PACE financing had higher fees and interest rates than that of a customary lender.

This is a common misconception due to the fact that comparing a PACE financing to a common mortgage is akin to comparing apples to oranges.

PACE financing is a special assessment against a property that has had an energy saving upgrade such as new HVAC, windows, roof, lighting, and water treatment with an economic benefit during the financing period equal to or greater than the cost of the project.   

It is also commonly used in new construction for costs associated with the aforementioned energy upgrades.

The key word here is assessment.  It’s just like a real estate tax. This assessment can be spread out over the useful life of the energy conservation measures such as a new roof, 25-30 years; LED lighting 10-15 years; and HVAC 18-25 years.

There are unique advantages to a PACE financing over traditional construction loans or mortgages.

In a traditional loan, closing costs are due upfront; in PACE, they are amortized in the annual assessments. In traditional construction loans the rate is fixed for the first five years; in PACE, the fixed rate is from to 15-30 years. The length is determined by the state. In Missouri, the maximum term is 20 years. In Nebraska, it depends on the weighted average useful life of the energy conservation measures.

In a traditional loan, the borrower’s credit ratios and balance sheet are affected by the loan balance of a mortgage. In PACE, the property itself is the creditor, and the property owner and personal credit availability are not affected by the PACE financing.

The PACE financing is non-recourse to the property owner or an individual (after completion for ground up development or major redevelopment) in cases of default.  

When a property owner defaults on a PACE payment, only the overdue amount, and not the entire balance, is due. Not so with a traditional construction or long-term mortgage: it is due immediately in the case of default.

When a property is sold with traditional financing, the loan is due immediately and needs to be refinanced, often at higher rates.  

In PACE financing, the obligation passes through to the subsequent property owner when a property is sold. There are times when the PACE financing is paid off upon sale and it depends upon what makes best economic sense for the new buyer and the seller.  

Since PACE assessments typically have a term of 15 to 25 years, and over that period there may be multiple property owners, there is never a need to refinance because the PACE assessment obligations remain attached to the property, unaffected by a change in ownership.

For all these reasons, a PACE financing cannot be compared to a traditional construction or mortgage loan; it’s an entirely different animal.

Making Memories in Omaha at the College World Series

Chris Peterson

Chris Peterson

Post written by Chris Peterson | Managing Partner, Nebraska

Each June, college baseball’s best eight teams travel to Omaha for the NCAA College World Series (CWS). The 2017 teams are: Oregon State, Texas A&M, TCU, LSU, FSU, Florida, Cal State Fullerton, and Louisville.

The event has been hosted by Omaha since 1950 and played in the current downtown stadium – TD Ameritrade Park – since 2011.

The first CWS game I attended was in in the late 1980s – about 30 years ago. Back then, and up until 2010, the games were played at Johnny Rosenblatt Stadium.

That old ballfield had considerable charm and decades of memorable play from memorable players. It was located in “South Omaha” near older neighborhoods and adjacent to the city’s exceptional Henry Doorly Zoo.

With time comes change and the old stadium – affectionately called “The Blatt” by locals and CWS regulars – was in need of much more than a makeover after the CWS marked 50 years in Omaha in 1999.

So after several years of discussion between the city and the NCAA, a modern ballpark was built and in return Omaha was granted a long-term agreement to host the CWS thru 2035. TD Ameritrade Park sits in a booming area of north downtown with hotels, bars and restaurants – and plenty of space for tailgating.

Father and SonSo the still-new stadium has been working on a few memories of its own. Opening weekend of the tournament – made up of eight teams that advanced from a playoff field of sixty-four – includes two games each day.

The Sunday games this year – and most years – coincide with Father’s Day, providing a great opportunity for fathers and sons to watch some baseball together.

This year I attended the opening weekend’s Sunday afternoon game – Louisville vs. Texas A&M – and brought along one of my four children; a Father’s Day treat.

Although the Omaha city skyline picture below turned out better than our father-son picture, both are symbolic of the memories tens of thousands of fans make at the College World Series every year.

So if you’ve never been, what are you waiting for? After all, there are memories to be made.

Nebraska 150: A Reminder That Constant Change Isn’t New

Chris Peterson

Chris Peterson

Post written by Chris Peterson | Managing Partner, Nebraska

2017 is a milestone in Nebraska history and offers a unique opportunity to reflect on the past, assess the present and contemplate the future while recognizing constant change isn’t new.

When Nebraska became a state 150 years ago, the change in America and in Nebraska, specifically, was remarkable. The 1860’s witnessed the Civil War – a profound event in the history of our nation, the assassination of President Abraham Lincoln, and the passage of both the Homestead Act and the Pacific Railway Act.

President Lincoln signed the Pacific Railway Act of 1862 which directed the Union Pacific and Central Pacific railroads to develop a transcontinental railroad. The Union Pacific started its share of the project in Omaha, stretching west across the Plains and the Rocky Mountains to meet up with the Central Pacific at Promontory Summit, Utah in 1869. The Central Pacific had begun its march eastward from Sacramento and similarly had to cross mountain ranges. Read more about the fascinating history of Union Pacific here: http://www.up.com/timeline/index.cfm/

Also in 1862, President Lincoln signed the Homestead Act which granted 160 acres of land to any head of household willing to live on the land for at least five years. Altogether 270 million acres of land or ten percent of the area of the United States was claimed under the Homestead Act. Today, Homestead National Monument in Nebraska serves as a historic, cultural and educational resource about the settling of the American West and homesteading. Read more from the National Park Service here:  https://www.nps.gov/home/index.htm

Nebraska 150In 1864, in advance of his re-election, President Lincoln sought statehood for Colorado, Nebraska and Nevada apparently believing they would deliver their electoral votes to him in the presidential contest. That year Nebraska couldn’t settle on a state constitution and Colorado voters rejected a state constitution.

However, Nevada took the steps needed to be eligible for statehood and Congress approved statehood in time for the Silver State to participate in the 1864 election. It would be another three years (two years after Lincoln’s assassination) before Nebraska would become a state.

When statehood did happen for Nebraska, it was the result of a veto override; Nebraska is the only state admitted to the union as the result of a veto override. The statehood back-story involves civil rights and federalism and came on the heels of the Civil War. A good and brief history lesson on Nebraska’s admission to the union in 1867 can be found at the CSG Midwest website here: http://www.csgmidwest.org/policyresearch/1015-Nebraska-statehood.aspx

Thinking about how the Homestead Act, Pacific Railway Act and Nebraska statehood took place 150 or more years ago, it’s amazing the change or disruption in American society taking place in the 1860’s. Add to it the Civil War and Lincoln’s assassination, and clearly, America’s culture, economy, and way of life were being turned upside down.

Today, the pace of change and disruption to our society as a result of innovations in technology and healthcare, the threat of global terrorism, and cultural change has similarly pulled America into the future just as happened with the events and change 150 years ago.

Some reflection on the past can provide some reassurance about where we are today and where we are headed tomorrow.

After all, constant change isn’t new.